Ways to Counter Chargebacks and Fraud

Credit card fraud and chargebacks are a constant threat to any online business. According to the 2001 Online Fraud Report, conducted by Mindwave Research, 41% of merchants find online credit card fraud a serious threat to their business. There is a need for immediate measures to reduce and virtually eliminate chargebacks and fraud.

A chargeback occurs when a transaction is reversed or a certain amount of money from your account is deducted. Chargebacks can occur for reasons such as, double-charging, credit card expiration, bank error and customer disputes. A large number of chargebacks are fatal and you may even lose your merchant account. Once you've lost your merchant account, you are placed on the Visa/MasterCard Terminated Merchant File (TMF/MATCH list) for several years. If you are on the list, you will face difficulties in getting another merchant account.

There is still hope. And this hope lies in the ways to counter chargebacks and frauds, as listed below:

Post a warning messagePost a warning message on your order page to discourage fraudulent elements. Also, mention that IP (Internet Protocol) addresses are logged and come in handy when locating people about fraudulent orders.

Request fax copies of ID and credit cardYou may ask your customers to fax a copy of both sides of their credit card and driver's license. This is for verification purposes and works best in a B-to-B (business to business) sales environment.

Signatures on deliveryYou may have your carriers get customer signatures which you retain for your records.

Watch out for orders using free e-mail addressesAvoid taking orders from free e-mail addresses as it is difficult to track such people.

Handle suspicious orders accordinglyIf an order seems suspicious to you, call or e-mail the customer to make verifications.

Let customers know what name will appear on statementsIf you’re using a third-party credit card processor, it is the processor’s name that appears on the credit cad monthly statements of the card holder. Reduce confusion by informing your customers in advance what they should and shouldn’t expect.

Scrutinize orders from developing foreign countriesA large percentage of fraudulent Internet purchases are made from overseas. Accept these orders at your own risk.

Use Address Verification System (AVS)AVS is critical to ensure the address entered on the order form matches the address to where the cardholder's billing statements are mailed. AVS only works with orders conducted in the US.

Collect CVC2 and CVV2 Verification NumbersThis reduces instances of chargebacks by 26%. You may ask your MasterCard, most Visa and Discover credit card holders’ to give the 3-digit-security code located right after the credit card number as an additional verification measure.

Interactive Voice Response (IVR) TerminalsThese are a new solution that reduces fraud by collecting a "voice stamp" or voice authorization and verification from the customer.

If you follow the above instructions, your chargebacks will be minimized to a great extent. Lesser the chargebacks, the more your business prospers. Chargebacks and fraud cannot be ignored. Thus, risk management solutions must be incorporated and exercised.